Time is Running Out – Mortgage Debt Relief Act
In 2007, The Mortgage Debt Relief Act was passed in an effort to help the millions of homeowners in danger of losing their homes to foreclosure.
A Temporary Measure
This act was always intended to be a temporary solution. Unless congress extends this act, it will expire at the end of 2012. That means time may be running out to take advantage of this program.
Before the Act
- A homeowner who could not afford their mortgage negotiated a foreclosure solution with their lender, usually a short sale.
- The bank was legally required to report the amount of the forgiven debt to the IRS.
- The IRS treated this forgiven debt as income. Even though the homeowner did not receive any cash from the bank, it was a credit received by the borrower that didn’t previously exist.
- The homeowner was then responsible to pay income tax on this amount, sometimes amounting to tens of thousands of dollars.
For many homeowners, this was an impossible amount to pay, and they discovered they had traded one unmanageable payment for another.
Result of the Act
The homeowner is no longer required to pay taxes on forgiven or canceled mortgage debt, with one specific rule: The Act only applies to mortgage debt on a primary residence.
Frequently Asked Questions
- What does the Mortgage Debt Relief Act Expire? December 31, 2012
- How much debt can be forgiven? $2 million ($1 million if married filing separately)
- Does this apply to any debt forgiven? No, it applies only to mortgage debt forgiven on a primary residence
- Who determines how much debt is forgiven? The lender is required to report any forgiven debt over $600
- Will this be reported on my credit? If a foreclosure was started, then probably so, though less impactful than a completed foreclosure.
One of the Most Important Things to Know
The sooner help is sought, the more options are available, and the greater chance of success.
As a real estate professional who has earned the Certified Distressed Property Expert (CDPE) designation, my mission is to provide financially strapped homeowners with alternatives to foreclosure, help them steer clear of scams, and assist them in finding the solution that best meets their needs.
These are tough times, but more help is available than ever before. If you or someone you care about needs help to realign the balance of your financial life and tip the scales back in your favor, contact me today and let’s get started.